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Connecticut Attorney General: Berkshire-Moody's Relationship "Symptom" of Flawed Credit Rating System

Thursday, 1 May 2008 | 8:09 PM ET
State Attorney General Richard Blumenthal holds a press conference in his office to announce plans to file a lawsuit against the U.S. Department of Education over the federal No Child Left Behind Act in Hartford, Conn., Monday August 22, 2005. (AP Photo/Jessica Hill)
Jessica Hill
State Attorney General Richard Blumenthal holds a press conference in his office to announce plans to file a lawsuit against the U.S. Department of Education over the federal No Child Left Behind Act in Hartford, Conn., Monday August 22, 2005. (AP Photo/Jessica Hill)

Connecticut Attorney General Richard Blumenthalsays his look at a possible conflict of interest involving Warren Buffett's Berkshire Hathaway and Moody's is "simply one facet" of a broader investigation into the credit rating agencies.

In an interview today (Thursday) with NBC station WVIT in Hartford, Blumenthal calls the Berkshire-Moody's relationship a "symptom of flaws in a system rife with conflicts of interest and problematic relationships."

As we related in a WBW post earlier today, Bloomberg first reported that Blumenthal is looking at whether it is improper for Moody's to give Berkshire Hathaway's new bond insurer a high rating, when Berkshire is also Moody's largest shareholder.

We asked WVIT to talk to Blumenthal on-camera about his investigation. They did, and here's the video clip.

Blumenthal Looks at Berkshire
CT attorney general Richard Blumenthal comments on his investigation of a potential conflict of interest involving Berkshire Hathaway's stake in Moody's.

WVIT: Tell us about your investigation with Berkshire Hathaway and Moody's in a possible conflict of interest.

Richard Blumenthal: Our interest in Berkshire Hathaway is just one facet of a broader investigation into the rating agencies, Fitch, S&P, and Moody's, and their relationship to other corporations, including the bond insurers and the companies that have ownership interests in them. If Moody's is rating a company that has a substantial financial relationship or ownership interest, it raises, at the very least, problematic appearances. But, our view is that this relationship is simply a symptom of flaws in a system rife with conflicts of interest and problematic relationships. So, we're focusing on a variety of questions. We're pursuing our investigation. But this issue is simply one facet, or aspect, of a larger investigation.

WVIT: Where are you at in the process of your investigation?

Blumenthal: We've made a lot of progress. There have been subpoenas. We generally decline to comment on them, on their substance, or the fact even that they've been issued, although the ratings agencies have made public the fact that they've received subpoenas. And we have collected a great deal of information, a lot of it relevant to these potential conflicts of interest, or wrongdoing that may violate our antitrust laws. And we're hopeful that we'll complete it within a matter of months.

WVIT: What kind of potential charges could there be, if any, or changes in the system?

Blumenthal: We're looking at a system that is rife with conflicts of interest and problematic relationships that could have very powerful anti-competitive effects. And the remedies will depend on what our findings are, whether they deal with practices in the system or the structure of the system itself. But right now, we are investigating and we've reached no conclusion.

WVIT: If you can comment, has Berkshire Hathaway been cooperative during your mission to investigate this?

Blumenthal: I would say all of the companies have been cooperative so far, the ratings agencies, the bond insurers, and any others that have been involved.

Current Berkshire price:

Current Moody's price:

See Warren Buffett Watch on CNBC's The Call, most weekday mornings at 11:50a ET

Questions? Comments? Email me at buffettwatch@cnbc.com

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